Question

1.

Given the information in the table, what is the dividend yield from t=0 to t=1?

Today’s Dividend	$3.11
Discount Rate	7.96%
Growth rate in dividends 0 to 1	6.21%
Growth rate in dividends 1 to 2	9.48%
Growth rate in dividends 2 to 3	5.63%
Growth rate in dividends 3 onward	3.28%

2.

Given the information in the table, what is TODAY’s price of the stock?

Today’s Dividend	$4.52
Discount Rate	9.00%
Growth rate in dividends 0 to 1	3.00%
Growth rate in dividends 1to 2	6.00%
Growth rate in dividends 2 to 3	6.00%
Growth rate in dividends 3 onward	3.00%

3.

Given the information in the table, what is the price of the stock in YEAR 1?

Today’s Dividend	$4.47
Discount Rate	8.31%
Growth rate in dividends 0 to 1	9.90%
Growth rate in dividends 1 to 2	9.11%
Growth rate in dividends 2 to 3	5.60%
Growth rate in dividends 3 onward	3.14%

Answer 1

1.
=3.11*1.0621/(3.11*(1.0621/1.0796)+3.11*(1.0621/1.0796)*(1.0948/1.0796)+3.11*(1.0621/1.0796)*(1.0948/1.0796)*(1.0563/1.0796)+3.11*(1.0621/1.0796)*(1.0948/1.0796)*(1.0563/1.0796)*(1.0328/(7.96%-3.28%)))=4.33533052811766%

2.
=4.52*(1.03/1.09)+4.52*(1.03/1.09)*(1.06/1.09)+4.52*(1.03/1.09)*(1.06/1.09)*(1.06/1.09)+4.52*(1.03/1.09)*(1.06/1.09)*(1.06/1.09)*(1.03/(9%-3%))=81.805748113234

3.
=4.47*1.099*(1.0911/1.0831)+4.47*1.099*(1.0911/1.0831)*(1.056/1.0831)+4.47*1.099*(1.0911/1.0831)*(1.056/1.0831)*(1.0314/(8.31%-3.14%))=106.030992862901